Related papers: The professional trader's paradox
In society, mutual cooperation, defection, and asymmetric exploitative relationships are common. Whereas cooperation and defection are studied extensively in the literature on game theory, asymmetric exploitative relationships between…
If financial markets displayed the informational efficiency postulated in the efficient markets hypothesis (EMH), arbitrage operations would be self-extinguishing. The present paper considers arbitrage sequences in foreign exchange (FX)…
The Parrondo's paradox is a counterintuitive phenomenon in which individually losing strategies, canonically termed game A and game B, are combined to produce winning outcomes. In this paper, a co-evolution of game dynamics and network…
Traders in a market typically have widely different, private information on the return of an asset. The equilibrium price of the asset may reflect this information more accurately if the number of traders is large enough compared to the…
A basic question for zero-sum repeated games consists in determining whether the mean payoff per time unit is independent of the initial state. In the special case of "zero-player" games, i.e., of Markov chains equipped with additive…
An asymmetric information model is introduced for the situation in which there is a small agent who is more susceptible to the flow of information in the market than the general market participant, and who tries to implement strategies…
The possibility of re-switching of techniques in Piero Sraffa's intersectoral model, namely the returning capital-intensive techniques with monotonic changes in the profit rate, is traditionally considered as a paradox putting at stake the…
We all have preferences when multiple choices are available. If we insist on satisfying our preferences only, we may suffer a loss due to conflicts with other people's identical selections. Such a case applies when the choice cannot be…
This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…
Paradox of choice occurs when permitting new strategies to some players yields lower payoffs for all players in the new equilibrium via a sequence of individually rational actions. We consider social network games. In these games the payoff…
We consider a network of coupled agents playing the Prisoner's Dilemma game, in which players are allowed to pick a strategy in the interval [0,1], with 0 corresponding to defection, 1 to cooperation, and intermediate values representing…
The occurrence of Simpson's paradox (SP) in $2\times 2$ contingency tables has been well studied. The present work comprehensively revisits this problem using a combination of philosophical reflections, causal considerations, and…
In the last few decades, numerous experiments have shown that humans do not always behave so as to maximize their material payoff. Cooperative behavior when non-cooperation is a dominant strategy (with respect to the material payoffs) is…
We introduce a betting game, where the gambler aims to guess the last success epoch from past observed data. The player may bet on the event that no further successes occur, or choose a `trap' which is any span of future times. In the…
This paper studies the rationalization and identification of binary games where players have correlated private types. Allowing for correlation is crucial in global games and in models with social interactions as it represents correlated…
We look at the Florida Lottery records of winners of prizes worth $600 or more. Some individuals claimed large numbers of prizes. Were they lucky, or up to something? We distinguish the "plausibly lucky" from the "implausibly lucky" by…
We present results on simulations of a stock market with heterogeneous, cumulative information setup. We find a non-monotonic behaviour of traders' returns as a function of their information level. Particularly, the average informed agents…
Gambles are random variables that model possible changes in monetary wealth. Classic decision theory transforms money into utility through a utility function and defines the value of a gamble as the expectation value of utility changes.…
The purpose of this article is to propose a new "theory," the Strategic Analysis of Financial Markets (SAFM) theory, that explains the operation of financial markets using the analytical perspective of an enlightened gambler. The gambler…
We investigate the financial market dynamics by introducing a heterogeneous agent-based opinion formation model. In this work, we organize the individuals in a financial market by their trading strategy, namely noise traders and…